US Judge Told Of USAir`s `Corporate Amnesia`

20th Sep 1999

British Airways today urged a US judge to throw out claims made against it by USAir, arguing that the US airline was suffering from “a case of corporate amnesia”.

Bob Ayling, British Airways` Chief Executive, said today: “We regret that USAir has brought these proceedings against us. There is no basis for them, and we believe that this is not an appropriate way to conduct business between members of an alliance.

“We believe that a continued alliance between British Airways and USAir is in the interests of both airlines, their customers, employees and shareholders.”

British Airways` motion to dismiss, filed in US District Court, Southern District of New York, argues that, “shorn of its rhetoric”, USAir`s claim only shows that its new management is “disappointed” that British Airways has sought an additional US partner in American Airlines, which it is free to do under its agreement with USAir, and “frustrated” that the terms of the investment agreement between the two airlines permit it to do so.

British Airways` submission adds: “Disappointment and frustration, however, do not give rise to recognisable legal claims. Indeed, USAir has apparently - and quite conveniently - developed a case of corporate amnesia.” It points out that:

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* In alleging that its proposed alliance with AA is a breach of its obligations to USAir, USAir “forgets” that its previous Chairman stated publicly in November 1995 that British Airways` discussions with AA were “perfectly acceptable” and that there is “nothing in the 1993 investment agreement that prohibits either them or us from seeking other partners.”

* In alleging that its investment in and representation on the board of USAir “substantially lessens competition”, USAir “forgets” that when it wanted British Airways` original $300 million (more than $400 million in total to date) investment, USAir told the US Department of Transportation it was “pro-competitive and beneficial to consumers”. It also described British Airways` involvement as a “minority investment in USAir, nothing more.”

* In alleging that British Airways had not used its “best efforts” to obtain DoT approval for the full investment agreement between the two carriers, USAir “forgets” that the parties jointly applied for DoT approval in 1993 and 1994 only to be told repeatedly by the DoT that it would not fully approve the 1993 investment agreement “without action on the part of the US Congress amending our foreign ownership law.”

* In alleging that British Airways insisted it relinquish its three routes between the US and London Gatwick, USAir “forgets” that this divestiture “was compelled by a court-approved consent decree that USAir entered into with the US Department of Justice to cure anti-trust concerns”. “Demonstrating that USAir apparently suffers from short-term as well as long-term memory loss”, USAir further “forgets” that it told the US Department of Transportation only three weeks after filing its complaint that its agreements with British Airways “do not preclude re-entry by USAir into the US-London market.”

British Airways states in its submission that USAir has resorted to an “artifice to conceal the obvious deficiencies in its pleading.” It adds: “Even modest scrutiny of the complaint reveals that, as a matter of law, all of USAir`s claims should be dismissed.”

It submits that USAir has been “unable to identify a single substantive provision of the 1993 agreement (with USAir) that British Airways has purportedly broken.”

British Airways also believes that USAir`s current management apparently hopes to escape its obligations under the investment agreement and aspires to a commercial agreement more favourable towards USAir, stating: “This complaint is a bold attempt to employ the court as an element of USAir`s renegotiation strategy.”

British Airways kept USAir advised of its dealings with American as the negotiations neared a conclusion and has always maintained a dialogue with USAir through senior management working on the relationship.

British Airways also met with USAir immediately after the announcement of the proposed alliance with AA to brief USAir fully on the arrangement and to explore opportunities for USAir`s involvement in a way that would bring it incremental revenue and strengthen its position in the USA.